There
was a rush of foreign direct investment into Indian real estate when
the sector was first opened, but that is now drying up. Private equity
(PE) players, foreign and domestic, have greatly reduced their exposure –
their investments in real estate fell by 36 per cent in 2012 over 2011,
as compared to a 19 per cent reduction in such funding in India as a
whole. And those still backing realty projects, such as Motilal Oswal PE
or IIFL Private Wealth, have started offering loans instead of
acquiring equity charging interest of more than 20 per cent and seeking collateral often twice the size of the loan.
…Even a veteran realtor such as the Mumbai-based
Oberoi Realty, while venturing into the National Capital Region, has
been looking for a local developer or landowner, so it only has to
invest in the building of the project. Or take Nitesh Estate, a newcomer
in the field, but one which has already done a successful IPO – it
operates without any land assets. “This model allows the realtor
more flexibility as the developer is not paying interest on loans taken
to buy the land,” says Pranay Vakil, Chairman, Praron Consultancy, and
the former founder-chairman of property consultant Knight Frank India.
“He can go about a project building by building, selling one fully
before starting on the next. It also gives him more holding power in a
bad economy.” He says that at least half the projects under construction
now follow this model.Banks may still be reluctant to lend to realtors,
but new ways of raising funds are being found. Hirco Plc, for instance,
is using overseas funds in Indian projects in an ingenious manner. The
company, launched by Priya Hiranandani-Vandrevala, is listed on the
Alternative Investments Market (AIM) of the London Stock Exchange. Its
projects in India, however, are built and marketed by a different
company called Hirco Developments, led by Firdose Vandrevala, uncle of
Priya’s husband Cyrus. “Our model is to set up a special purpose vehicle
(SPV), with Hirco Plc investing in it and getting preference shares,”
says Vandrevala, formerly with the Tatas and also an ex-chairman of
Motorola India. “The Hiranandani family brings in the land and is
allocated equity shares in return. Hirco Developments builds the
products and markets them for a fee.” It is currently executing one
project at Panvel on Mumbai’s outskirts and another in Chennai.
…While selling some of its Mumbai flats, Lodha Developers tried another
tactic. It offered them in a price band instead of at a fixed price, in
much the way an initial public offering (IPO) does, and decided the
final price only after receiving buyer responses. Much like a successful
IPO, it drew twice as many applicants as the flats it had to sell. “It
was a nice way of grabbing some of the demand,” says Vakil of Praron.
Flat allotees too were later chosen through an automated software
programme, the way IPOs do.
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